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Towards a Multidimensional Poverty Index for Germany A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Suppa, Nicolai Conference Paper Towards a Multidimensional Poverty Index for Germany Beiträge zur Jahrestagung des Vereins für Socialpolitik 2015: Ökonomische Entwicklung - Theorie und Politik - Session: Public Choice and Welfare, No. G12-V2 Provided in Cooperation with: Verein für Socialpolitik / German Economic Association Suggested Citation: Suppa, Nicolai (2015) : Towards a Multidimensional Poverty Index for Germany, Beiträge zur Jahrestagung des Vereins für Socialpolitik 2015: Ökonomische Entwicklung - Theorie und Politik - Session: Public Choice and Welfare, No. G12-V2, ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft This Version is available at: http://hdl.handle.net/10419/113086 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Towards a Multidimensional Poverty Index for Germany Nicolai Suppa∗ August 2015 Abstract This paper compiles a multidimensional poverty index for Germany. Drawing on the capability approach as conceptual framework, I apply the Alkire-Foster method using German data. I propose a comprehensive operationalization of a multidimensional poverty index for an advanced economy like Germany, in- cluding a justification for several dimensions. Income, however, is rejected as a dimension on both conceptual and empirical grounds. I document that insights obtained by the proposed multidimensional poverty index are consistent with earlier findings. Moreover, I exploit the decomposability of the Alkire-Foster measure for both a consistently detection of specific patterns in multidimen- sional poverty and the identification of driving factors behind its changes. Fi- nally, the results suggest that using genuine multidimensional measures makes a difference. Neither a single indicator nor a dashboard seem capable of replac- ing a multidimensional poverty index. Moreover, I find multidimensional and income-poverty measures to disagree on who is poor. Keywords: multidimensional poverty, Alkire-Foster method, capability approach, SOEP JEL Classification Numbers: I3, I32, D63, H1 ∗TU Dortmund, Department of Economics, 44221 Dortmund, Germany, e-mail: nicolai.suppa@tu- dortmund.de, phone: +49 231 755-4374, fax: +49 231 755-5404. The author gratefully acknowledges funding by the German Research Foundation (DFG). 1 1 Introduction Background. The last two decades have witnessed increasing interest in both concepts and measures of well-being. Remarkable efforts have been made, from the Human De- velopment Index in 1990, to the Millennium Development Goals in 2001, to the OECD Better Life Index in 2011.1 Conceptual frameworks related to well-being, such as the ca- pability approach (CA), the subjective well-being literature, and the theory of fairness, are burgeoning alike. In 2009 the so-called Stiglitz-Sen-Fitoussi Commission, appointed to explore alternative measures of welfare and social progress, presented its report. By now, the importance of measuring well-being in general and poverty and social exclusion in particular is acknowledged even in advanced economies. Along with these developments, significant improvements in the methodology of mul- tidimensional measurements have been made as well (e.g., Tsui, 2002, Bourguignon and Chakravarty, 2003, Alkire and Foster, 2011a). So far, these measures have been system- atically employed to analyze poverty in the developing world; see in particular Alkire and Santos(2011) and UNDP(2011). However, applying these techniques to advanced economies requires appropriately adapted specifications and operationalizations, such as choosing the relevant dimensions, appropriate indicators, and reasonable cutoffs. More- over, these choices are also contingent upon the concrete purpose of the poverty measure: Is the task to identify general trends across countries and to assess countries’ relative per- formance in fighting poverty? Or alternatively, is there a need for a society-tailored poverty index to evaluate policy measures more carefully and to better understand both poverty structure and dynamics in that society? As these overall objectives crucially affect the response to many of the arising trade-offs, their explication is imperative. Previous Research. Recent attempts applying the Alkire-Foster method (AFM) to ad- vanced economies include Whelan et al. (2014) and Alkire et al. (2014). Both studies focus on cross-country comparisons and use EU-SILC data, where most indicators are lo- cated in resource space. While Whelan et al. (2014) only exploit the cross-section, Alkire et al. (2014, p. 3) emphasize that currently their contribution is not an empirical one, for reasons of data availability and coverage. Busch and Peichl(2010) also apply the AFM (among other methods), using SOEP data. However, they only consider education, health, and income and only loosely relate their work to a conceptual framework. Also using SOEP data, Rippin(2012) employs a different method (a correlation-sensitive poverty in- 1See UNDP(1990),UN(2012), OECD(2011). 2 dex), which also reflects inequality among the poor. However, Alkire and Foster(2013) demonstrate that no measure can be both sensitive to inequality (understood as dimen- sional transfer) and satisfy dimensional breakdown and subgroup decomposability simul- taneously. Moreover, if at hand, most studies include income as a dimension, although it is unclear whether such an approach is justified (conceptually and empirically). Finally, there is also the literature on material deprivation in the tradition of Townsend (1979) and Yitzhaki(1979), thanks to which new indicators have been widely introduced. This research, however, primarily relies on resource indicators. Consequently, their trans- formation into well-being is mostly ignored. Thus, despite some attempts in this direction, more comprehensive and well-justified multidimensional poverty indexes for advanced economies are still lacking. Contribution. The present paper complements the previous literature in several ways. Conceptually, I propose a more comprehensive operationalization of a MPI for an advanced economy like Germany, including a justification for selected dimensions. Specifically, I ar- gue in favour of including material deprivation and employment as important dimensions, as they contribute extra information on otherwise ignored functionings. However, I reject a lack-of-income dimension on both conceptual and empirical grounds. In addition to edu- cation, health, housing, I also propose an operationalization of social participation. Empiri- cally, I demonstrate that insights obtained by the proposed multidimensional-poverty index are consistent with earlier findings (e.g., migrants suffer more poverty). Going beyond a documentation of changes in multidimensional-poverty, I exploit, moreover, features of the adopted method (e.g., its decomposability) that allow to consistently detect specific pat- terns (e.g., changing gaps or other asymmetric impacts). Unfolding the summary measure allows, moreover, to identify the driving factors behind changes in poverty (e.g., changes employment or material deprivation indicators). Finally, I demonstrate that using gen- uine multidimensional measures makes a difference. First, the data at hand suggest that neither a single indicator, nor a dashboard approach can replace a genuine multidimen- sional approach. The crucial information of coupled deprivation (the “joint distribution”) is otherwise easily missed. Importantly, I also find multidimensional- and income-poverty measures to substantially disagree on who is poor. This contrast in targeting renders dif- ferent policy implications likely. Significance. The present study enhances multidimensional poverty measurement for an advanced economy like Germany. Since, by now, the importance of poverty in advanced 3 economies is widely acknowledged, several governments, started to compile dedicated re- ports, documenting numerous poverty-relevant developments. The German government, for instance, now releases an official report on poverty and wealth (RPW) for each legisla- tive session. The reports publish and analyze selected core indicators, and also provide advice on policy measures. So far, however, the RPWs lack both a composite measure and a systematic account of multiple deprivation.2 The present study aims to close this gap and promote a multidimensional poverty index tailored to the German
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